From: Nicholas Fung
It would appear that special interest are once more trying to assault safeguards established for the protection of the small investor. The existing rule that requires orders be routed to market centers with the "Best Then Available Execution", is one that without doubt benefits small investors in the sense that not only is the best price obtained, but competing quotes from other market centers are forced to fall in line if they wish to attract order flow; a pure capitalistic display of competition at work. Having said this, however, one must recognize that not all orders are from Small Investors and our economic and social systems also protect the right to informed choice.
Security Orders normally fall into 2 categories, namely:
The majority of small investor orders fall under auto routing and would be the ones affected by a change in the NMS Trade Through Rule. Establishing size limits are not necessarily solutions as we saw with the SOES Bandit episodes of breaking down orders into smaller sizes to get around regulations. I think it is fair to say that there will always be those that will seek a way around established rules. Creating exceptions to rules only requires more time spent for enforcement and interpretation of the rule.
The orders that are worked by Trading Desks are normally larger size and from predominantly Institutional, or the so called informed and supposedly wise investor. These orders are given the benefit of a search for best negotiated execution, if that is the over-riding customer's execution requirement. Execution can either be manual or, systemic routing to market centers that meet customer requirements. To the extent that Best Execution is not necessarily a requisite, these customers should have the ability to have their orders directed to a market center other than the one with the best price display.
In order to achieve both the best price for small investors and meet other requirements for the more informed investor, I would suggest the following approach:
It would also be a nice to have to see price displays in the various mediums that include all market center quotes with best execution highlighted, but I wouldn't hold my breath. We must remember that brokers are in business to make money and with such incentives as Payment For Order Flow, may not necessarily have the customers' best interest at heart. Market Centers also have their own self interests and want to either retain or poach off of the business of others. As a small investor, my main desire is to get the best price with low commission cost. These requirements place me in the hands of internet based brokers that use auto routing & normally gets paid for order flow.